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Forward hedge or a money market hedge

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Reference no: EM131061101

Assume the following information:

90-day U.S. interest rate = 2%

90-day Mexican interest rate = 1.5%

90-day forward rate of Mexican peso = $0.05

Spot rate of Mexican peso = $0.055

Assume that the XYZ Co. in the United States will need 300,000 peso in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Explain your answer with relevant quantitative support

Reference no: EM131061101

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